Proton opted to go with Geely Automation as a solution to end its decline, as the new foreign strategic partner from China has a track record of turnaround and projected a brand new series of product and image for a brand universally synonymn with boring cars known preservation of life.
KUALA LUMPUR: Chinese entrepreneur and founder of Geely Automobile, Li Shufu, is the man who dared to buy loss-making national car maker Proton.
After years of dwindling sales and financial losses, it is hoped that finally now, Shufu is the man who would work his “magic”’ in reviving Proton as he did with prestigious Swedish auto maker Volvo.
Given his proven track record in turning round loss-making auto companies, the Malaysian government and Proton’s parent company DRB-Hicom are confident he will herald a new era of growth for Proton.
Yesterday, DRB-Hicom signed an agreement with China-based Zhejiang Geely Holdings Group Ltd for the Chinese car group to acquire 49.9% in the national car maker.
Under the deal, Proton would also dispose its entire stake in British sports carmaker Lotus for 100 million pounds (£1=RM5.57), a move that will enable Proton to cut its losses.
As Geely’s owner, Shufu owns 100% of Volvo, yet many might not be aware that the owner hails from China.
Shufu is rare among today’s many Chinese entrepreneurs for taking on auto manufacturing as it is a sector dominated by state enterprises and multinationals.
He founded Geely in 1986 to build refrigerators and became an automaker in 1997 when he wanted to produce a cheap car for the masses.
Geely Group now has reached 1.3 million car sales in the financial year 2016.
And, Shufu is now reportedly worth a staggering US$7bil.
As an entrepreneur-owner, his almost 50% ownership is a major plus point which Proton would derive from the partnership.
This is because Geely is a “entrepreneur driven” auto company and one of the few left in the world as opposed to car firms owned by state enterprises and multinationals.
As an entrepreneur-owner, there would undoubtedly be a greater sense of personal commitment to ensure that Proton achieves success at the domestic, regional and possibly global levels.
No wonder he is sometimes referred to as the ‘’Henry Ford of China.’’ Before he bought Volvo in 2010, the Swedish car maker owned by Ford then was on the brink of extinction.
He also owns the iconic London taxi Company.
With Geely’s expertise, one can expect new Proton models, transfer of technology, more jobs, auto engineers and bigger orders for parts vendors.
The partnership can also help ramp up production capacity of its under-utilised Tanjung Malim plant to its full annual capacity.
The Chinese firm’’s acquisition of Proton nicely fits into its plans to make its presence felt in South-east Asia for which it has been on the lookout for a manufacturing plant in the region.
Investor sentiment on Geely has been immensely favourable with its share price on the Hong Kong Stock Exchange having risen from HK$3.77 in 2014 to HK$11.50 as of May 22, 2017.
Only time will tell whether Proton would emerge as a formidable automative player again.
Nevertheless, with Shufu and Geely providing solid backing, our very own and much-loved Proton brand now has a real chance of making a comeback, and probably a huge comeback at that- Bernama
Zhejiang Geely offered an insight into the company’s background at the announcement of the Proton-Geely deal yesterday, and one of the presentation slides made note of Volvo Cars and of its revival and current growth, something the Chinese automaker was naturally proud to highlight, albeit subtly.
For good reason – when it purchased the Swedish automaker from Ford in August 2010 for US$1.5 billion in cash and debt, Volvo wasn’t in the pink of health, the company shifting just 335,000 units in 2009. Many didn’t think that the acquisition would amount to much in terms of success, that the brand could be saved by the Chinese company.
As developments have shown, the gamble paid off, and handsomely at that. Geely accomplished the turnaround with an injection of capital to the tune of US$11 billion, the investment used to revitalise the line-up with fresh models and develop innovative technologies. Key Volvo personnel were retained, which helped stability and continuity.
Products and technologies brought about by the transformation programme include the XC90, S90 and V90as well as new modular platforms, the Scalable Product Architecture (SPA) and Compact Modular Architecture (CMA). Developed for larger and smaller cars respectively, both vehicle platforms are capable of incorporating either hybrid or fully electric car technologies.
An emphasis on electrification has also come about. In October 2015, the automaker announced a comprehensive series of electrification strategies, and these will see the introduction of plug-in hybrids across its entire range, the development of an entirely new range of electrified smaller cars and the advent of a fully electric car by 2019.
All this has been reflected in strong sales growth over the last few years. By 2014, sales had climbed to 466,000 cars, and 2015 saw the automaker registering 503,127 units, the first time Volvo sold more than half a million cars in its 89-year history. Last year, it achieved its aim for a hat-trick of annual record sales, with 2016 sales amounting to 534,332 units.
The success Geely has had with Volvo augurs well for a similar transformation to take place with Proton. The Chinese company has stated it aims to revitalise Proton, and has pledged to make its global resources, knowledge and management skills available to the national carmaker.
Do you think Geely will be able to achieve its target of making Proton the number one Malaysian brand again, and into a leading brand in Southeast Asia? Share your thoughts with us in the comments section.
China’s most acquisitive auto mogul is at it again.
Li Shufu, founder and controlling shareholder of Geely Automobile Holdings Ltd., is adding another distressed asset to the trophy cabinet he’s assembled over the past decade. His holding company, Zhejiang Geely Holding Group, has agreed to buy half of Proton Holdings Bhd., Malaysia’s former national champion carmaker, the Chinese company said in a statement Wednesday.
49.9%
Li can add Proton — propped up by Kuala Lumpur with a 1.5 billion ringgit ($349 million) loan last April — to a collection of waifs and strays that includes Volvo Car AB and the London Taxi Corp., makers of that city’s famed black cabs. The question for Proton’s employees and current owner DRB-Hicom Bhd., which will hold on to the other half of the business, is whether the deal means a trip to the hospital, or the hospice.
There is actually reason for optimism. Volvo, which Li bought from Ford Motor Co. for $1.8 billion in 2010, has performed rather well since the deal. While Ford’s operating margin has flailed around the low single digits, contributing to the company’s decision to replace Chief Executive Officer Mark Fields this week, Volvo’s has steadily risen. Its net income was about 1 percent of Ford’s in 2011, the first full year of Li’s ownership; in 2016, it came to about 19 percent of its former parent’s.
Not every acquisition has gone so well. London Taxi continues to hemorrhage money, with 8.8 million pounds ($11.4 million) of losses since Li took the group under his wing in 2013. Even there, though, the underlying business is arguably performing better, with operating income of 1.5 million pounds in 2015 versus a 1.8-million-pound operating loss two years earlier.
Li’s strategy in many way resembles that of Carlos Ghosn, who has likewise stitched together a global automotive group by picking up stakes in companies at distressed prices, assembling the sprawling alliance of Renault SA, Nissan Motor Co., and Mitsubishi Motors Corp. As with Renault-Nissan, Zhejiang Geely has been trying to reduce duplicated costs at its various brands by building its Volvo and Geely cars off a common platform, sharing production lines and collaborating on developing hybrid and battery electric vehicles.
Country and Western
Volvo’s sales into China have been rising faster than Geely’s sales to the world
Source: Company reports
That’s probably a better strategy than the one followed by Ratan Tata. While Tata Motors Ltd.’s Jaguar Land Rover acquisition has proved an even greater success than Geely’s investment in Volvo, there’s been little opportunity for synergies between that high-end operation and Tata’s low-cost domestic brand. As a result, the British business continued to supply the overwhelming majority of Tata Motors’ group profits in annual results Tuesday.
Proton would provide a better opportunity for integration. In geographic terms, it would play a similar role to Mitsubishi’s standing within the Renault-Nissan Alliance, delivering the broader group an entree into Southeast Asia. Its relatively affordable cars could also provide a nice bridge between the premium Volvo segment and Geely’s own-brand vehicles, while Proton’s Lotus marque provides a bit of diversification into sexier sports cars. The dealer network around Asia, Australia and the U.K., while modest, could help revive Geely’s flagging export sales, too.
Whether that will be enough to knit together Li’s disjointed network of automotive investments is another matter — but the odds are certainly better for entrepreneurial outfits like Geely than they are for the giant state-owned enterprises that dominate China’s domestic industry in volume terms.
The Dead Hand
Return on equity at China’s state-owned joint venture carmakers is worse than at independents
Source: Bloomberg
Note: Latest fiscal year figures.
As Gadfly has argued previously, most SOEs are still a long way from acting as anything more than parasites on their foreign joint-venture partners — one reason that they’ve argued so vociferously against government plans to relax the restrictionsaround international ownership.
While Geely’s state-owned rivals focus on taxing offshore automakers who want to sell cars in China, Li has a vision for the world. In China’s parochial car industry, that’s a refreshing change.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
London Taxi counts some slightly odd costs as one-time items and excludes them from what it considers underlying earnings. In 2015, those included 1.1 million pounds for “legal fees in connection with litigation against a competitor” and 2.4 million pounds that was described as “operational readiness” in connection with the establishment of a new factory for zero-emission taxis. It’s not clear why the latter figure isn’t capitalized to the balance sheet.
*****************
The strategic partnership with a credible foreign partner was a condition as per announced by MITI Minister Dato’ Seri Mustapha Mohamad slightly over a year ago on the RM1.5 billion rescue plan for Proton.
The announcement by Minister of Finance II Dato’ Seri Johari Abdul Ghani stated the cinqco-factor is very apt and timely.
The Volvo story the past five years is an interesting one. The investment by Geely Automation enabled the Swedish automaker to progress a one time dying brand, which Ford was not able to do.
Volvo proceeded into rapid research and development programs with provided the ability to introduce refreshed brand new models with top of the line technology and quality, manifested in the VC90 T8 SUVs and S90 saloons.
The revitalisation of Proton would bring about progression to existing Malaysian automotive industry SMIs. The infusion of Geely Automation into Proton as the strategic partner is the much needed growth for the national car project with better funds for research and development, opening up new market like China and eventually the repackaging of the brand.
The competitive advantage for Proton and the entire Malaysian automotive manufacturing industry would propel the eco-system into higher position.
It is expected that automotive giant DRB-Hicom, which invested to takeover Proton from Khazanah in 2012, ends its financial haemorrhage with this partnership.
The Star story:
Tuesday, 31 May 2016 | MYT 7:00 PM
Proton weighs on DRB-Hicom, RM991m net loss in FY16
Weak foreign exchange affected Proton’s raw material cost.
KUALA LUMPUR: DRB-Hicom Bhd posted net losses of RM991.90mil in the financial year ended March 31, 2016, mainly due to the poor performance of Proton, which was a stark contrast for the diversified group with the earnings of RM300.19mil a year ago.
The group announced on Tuesday its revenue fell 11% to RM12.17bil from RM13.68bil a year ago.
It incurred a pre-tax loss of RM821.27mil compared with a pre-tax profit of RM501.83mil a year ago.
“The losses were attributed largely to the poor performance of Proton’s group with lower sales of motor vehicles amidst stiff competition, volatility in foreign exchange rates and weak consumer sentiment.
“The weak foreign exchange affected Proton’s raw material cost, the lack of new models during the financial period and reduced profit margins. In addition, Proton made provisions relating to certain non-recurring charges which had affected its bottom-line,” it said.
DRB-Hicom said if Proton’s results were excluded, the group’s performance in FY16 was commendable.
For the fourth quarter ended March 31, 2016, DRB-Hicom posted net losses of RM790.76mil compared with earnings of RM89.79mil a year ago.
Its revenue fell 17.9% to RM2.63bil from RM3.21bil. Loss per share was 40.90 sen compared with earnings per share of 4.64 sen. It recommended a dividend of two sen per share.
DRB-Hicom said it expected the outlook to remain challenging given the tough operating environment, but it “remains confident in a turnaround of Proton”.
It started on a strategic turnaround plan for Proton, working with the government including Ministry of Finance, Economic Planning Unit and Ministry of International Trade and Industry.
It pointed out the Turnaround Plan involved a RM1.5bil soft loan from the government to help it turnaround its fortunes and expand the carmaker’s domestic and international markets.
“Proton is scheduled to roll out several new models in the coming months ahead including the new Perdana, Persona and the popular Saga. It will also be introducing a new model in collaboration with Suzuki by the end of this year,” it said.
DRB-Hicom said aside from Proton, its unit Alam Flora’s solid waste management recorded increasing demand for its public cleansing services while Honda Malaysia reported record-breaking sales.
Another subsidiary, Composites Technology Research Malaysia (CTRM) reported an order book of RM12bil. New contracts signed or extended during the financial period included those with MD Helicopters US, Spirit AeroSystems Inc. and UTC Aerospace Systems.
This could be the strategy for DRB-Hicom to benefit from the partnership with China’s second most successful independent automotive producer Geely Automation through Proton.
Proton was born as a national car project out of the dream of then Fourth Prime Minister Dato’ Seri Dr Mahathir Mohamad. The first product Proton Saga rolled out into the Malaysian automotive market in July 1985, which was a rebadged Mitsubishi Lancer.
Track record of Proton from first roll out till when DRB-Hicom took over from Khazanah
Under Dr Mahathir’s watch, the protectionism policy in favour of Proton saw the Shah Alam based motorcar manufacturer soared into an annual production and sales over 200,000 units.
However, even ambitious Dr Mahathir and his profound ability “To sell Malaysia into the world” was unable to oversee the success of the brand overseas.
If the success story of Volvo could be extrapolated and replicated as a bespoke solution for the the one time pride of many Malaysians, Proton would enable to repackage itself and reposition the sliding brand.
In the final analysis, Malaysian consumers would be offered brand new and much improved Malaysian made automotive products.
The Edge Daily story:
Johari: No more subsidies for Proton
Samantha Ho
/
The Edge Financial Daily
May 25, 2017 10:28 am MYT
This article first appeared in The Edge Financial Daily, on May 25, 2017.
PUTRAJAYA: National carmaker Proton Holdings Bhd will no longer be receiving subsidies from the Malaysian government after DRB-Hicom Bhd sold a 49.9% stake to China-based Zhejiang Geely Holding Group Co Ltd, said Second Finance Minister Datuk Seri Johari Abdul Ghani.
The government will also reimburse only RM1.1 billion of the RM3.5 billion that Proton has spent on research and development (R&D) over the years, according to Johari.
“We want the company [to be run] as a private entity,” Johari said at the signing of the heads of agreement between DRB-Hicom and Geely. “The government will be here to watch [over] and support the future of Proton in any way we can,” he said, “but of course, there is no more subsidy.”
He added that although the deal is a private transaction between DRB-Hicom and Geely, the government had an interest in it because of the RM1.25 billion soft loan that was provided to Proton in June last year.
“Geely has already agreed to pay the redeemable convertible cumulative preference shares according to the time schedule,” Johari said.
He added that the government would facilitate the agreement to ensure that Proton, established 32 years ago as a government enterprise by then prime minister Tun Dr Mahathir Mohamad, remains a national carmaker.
“Proton will always remain a national car and a source of national pride. Geely, being one of the best automotive players in the world with a brand like Volvo, certainly will give a lot of assistance to Proton.
“The government has a stake in this because Proton currently employs 10,000 people and it is important that we hold intact the entire ecosystem of [Proton’s] vendors intact,” he said. On the R&D reimbursement grant, Johari said: “At the time [that the grant was agreed on], the government agreed to give [RM3.5 billion], but we want to make sure that whatever they spend on R&D they are able to recover through the volumes they produce. To do that, they need a strategic partner. The government doesn’t think Proton alone is capable of achieving the numbers to justify all the R&D,” he said.
“We were supposed to reimburse Proton much earlier, but we decided not to because they needed to get a strategic partner,” said Johari, adding that “if the deal is not completed, the reimbursement will not be given”.
“There’s no point spending the money on R&D and building this new platform if you are not able to get the volumes or the markets to cover the cost. That’s why we are reluctant to give the money because we are not sure whether this money will benefit the company and the entire industry,” Johari said.
As for Proton staff, vendors and suppliers, Johari gave assurance that they would not have to worry as Proton’s tie-up with Geely is expected to help realise the latter’s goal of achieving 500,000 car sales in Asean by 2020.
“We want Proton to be the No 1 brand in Malaysia and to bring it to the Asean region. Certainly, China is one of the markets we will look at. And we want all vendors and suppliers to be given the priority to participate in this development,” he said.
With Geely’s experience in developing vendors and suppliers, Johari expects Proton’s existing supply chain members to benefit in terms of numbers and volume. “Geely fully understands that to make cars competitive, it is necessary to have that supply chain. We already have the entire ecosystem; it’s just a question of putting the volume into it,” he said.
***********
Achieving a target of 500,000 units is something Proton never did able to do during the glory days of the national car maker when Dr Mahathir was still the prime minister. A target set with commercial solution is most welcome.
Proton as a business entity, would be responsible to maintain its operation and survival through commercial means without putting that financial burden further to the parent corporation DRB-Hicom nor the Government.
It is a win-win proven bespoke solution, for the preservation of the brand and commercially making Proton viable again.
Come on Bigdog. Geely don’t give two hoots about Proton. It’s Lotus they’re after. ‘Preservation of the brand and commercially making Proton viable again’ is the least in their minds.
Have you not foresee the influx of their citizen commuting from Kunming, via HSR & ECRL, to Bandar Malaysia and Forest City, in 20 to 30 years time when we’re already 6 feet underground?
The "thirteen million plus Ringgit" guy rambles.... 
Come on Bigdog. Geely don’t give two hoots about Proton. It’s Lotus they’re after. ‘Preservation of the brand and commercially making Proton viable again’ is the least in their minds.
Have you not foresee the influx of their citizen commuting from Kunming, via HSR & ECRL, to Bandar Malaysia and Forest City, in 20 to 30 years time when we’re already 6 feet underground?